13 things to think about in 2013

1. In order to achieve financial health you must think of yourself as a business. This will require you to remove the emotions from your financial decision making process. In a formal business assessment we do a SWOT analysis, which covers your strengths, weaknesses, opportunities, and threats.


2. Continuing with the business theme, you must understand your financial balance sheet. What is your net worth? What is your best asset? Which liabilities are non productive loans? What are the interest rates on your current loans?


3. How will you invest in your personal brand? How does this increase your current or future wealth? Will this action erode from your well being? What are you sacrificing?


4. Should I rent or own? This decision should be based on your income level, future needs, and purpose. Certain studies show there is a strong correlation between stability and homeownership. But as you might have learned from the past five years, a house isn't an ATM. From a personal finance perspective, some might argue that a house should not be considered an investment. Instead, a home should be thought of as an illiquid asset that is either a tax deduction or income generator.


5. Have you created a will? If so, does it truly reflect your wishes? Charitable endeavors are more sophisticated than others; do your financial wishes include these? If so, are others aware of your ultimate intent? One key note: If a physical asset such as a house is involved, is the beneficiary aware of your ultimate intent and able to accommodate this request?


6. Do you have insurance; if so, what type do you have? Do you know how much you will need? Why do you have insurance? The amounts/types depend on your current household needs, debt level, family situation, and purpose of insurance.


7. Am I working to live or living to work? Can I afford a vacation? How much would I need if I were laid off for a year? If I do have a financial disaster, what should I immediately do?

8. During the past couple of years, businesses have been paying off debt or refinancing it at a lower rate. Within corporate finance, this is known as deleverging. As you start 2013, have you thought about ways to get rid of some debt? If you have not thought about this, what are you willing to give up now for higher cash flow in the future (quasi definition of opportunity cost)? When making any change with your debt load, there is an assumed risk. It could be lower monthly savings, lower 401k contribution, etc. Bear in mind that in order for this trade off to work, the risk must be less than the reward.


9. 401-K investing is the biggest trick ever pulled. The reason I say this is because it gives you the power to invest your money, but a majority of overall participants lack the understanding to do it well or efficiently. Your retirement account should not only match and reflect your current view of the market but it should also reflect the current risk level you are comfortable taking. Risk is not based solely on how much pain you can bear, but also should reflect your employment/industry risk.


10. When thinking about portfolio management within the context of marriage, Alpha and Beta have multiple definitions. Within any marriage it is appropriate to plan a lifestyle around the beta earning spouse. This person has the more steady income, while the alpha (unpredictable income) spouse has the ability to earn more in a given year; however, that ability is dependent on factors outside his or her control.


11. Planning for retirement starts the first day you enter the workforce. Once retirement is closer the main focus should be deleveraging your lifestyle. This includes: downsizing your living arrangements, putting extra money aside, tracking your spending habits, and planning your next chapter of life. If you have five years or less to retirement this needs to be done today! Retirement planning is not always about "what you will have to spend" but should be more about "what lifestyle you will have."


12. Being "financially catfished" happens everyday. The only true way to get rich from investing requires an individual to take on more risk to increase the amount of reward. This includes creating a business, funding a business, or buying a business. These ventures share a common denominator -- an individual needs a large amount of capital to participate in these transactions. If you invest in the stock market, don't expect to get rich. Everything in this realm centers around due diligence, if you don't believe me, ask a Madoff victim.


13. The difference between being "Rich" and "Wealthy" is a state of mind. How does it feel to be wealthy? As someone told me, it is like giving your two-week notice to your employer and then coming into work carefree everyday. The only question that remains is, how do you maintain that feeling for life?

Is this you?

2012 has ended and we are in 2013.  Are you struggling to figure out how to make it through the year? Do you know how you would like to live 5, 10, 15 years down the road?  If not, then congratulations you are in the right place!  Please follow this blog as I will be updating this on a monthly basis.